SolveYourProblem
Article Series: Taxes
Help Me Understand My Taxes
Tax
Breaks and Issues For Disaster Victims
The complete and utter devastation caused
to the Gulf Coast by Hurricane Katrina was a wake-up call to
people everywhere about how quickly a natural disaster can
come in and turn your life upside down. If you are
the victim of a disaster, and your insurance does not cover
all of your
damages, the IRS may be able to help. In most cases, the IRS
allows disaster victims to deduct the amount of their damages
on their tax returns.
There
are two sets of tax rules that apply to disaster victims. One set of tax breaks apply to people who were victims of disasters
like tornadoes, floods, forest fires, and mudslides, but were
not affected by Hurricane Katrina. If this applies to you,
the first thing you need to do is contact your insurance company
and file a claim for your damages based on your policy guidelines.
Once you know what your insurance company will be paying you,
you can calculate the amount of the deduction you can take
on your taxes. First, you must subtract $100 from the total
amount of the remaining cost of damages not covered by your
insurance company. To qualify for a tax break, that amount
must be more than 10% of your total adjusted gross income.
If it is not, you cannot claim any deductions. If it is, you
must subtract 10% from your adjusted gross income. The number
you are left with is the amount of the tax deduction you can
take. If your area is declared a disaster area, then you can
claim your tax break in the year the disaster happens, on the
return for the previous year’s wages, instead of waiting for
the next tax cycle.
If you have been affected by Hurricane
Katrina, a different
set of tax deduction rules apply to you. Under the Hurricane
Katrina Emergency Tax Relief Act of 2005, for you, the $100,
plus 10% of your adjusted gross income reductions are lifted,
and you can claim any damages not covered by your insurance
whether or not they exceed 10% of your adjusted gross income.
You can withdraw up to $100,000 from your IRA or qualified
retirement savings account without being taxed. If you receive
debt relief in any form, that debt that is erased does not
count as taxable income.
If you made charitable donations in to a Hurricane Katrina
relief group in 2005, there are some special tax breaks that
apply to you as well. Normally, you can only make charitable
donations in amounts up to 50% of your adjusted gross income,
but if you donate to a Hurricane Katrina relief charity, there
is no donation ceiling. If you have housed people affected
by Hurricane Katrina for at least 60 days, you can claim a
deduction of $500 per person, up to a limit of $2,000. The
people cannot be your spouse or your dependent children.
When looking at tax relief for disaster victims, it is important
to keep a few things in mind. First, the Hurricane Katrina
benefits apply ONLY to Hurricane Katrina. Victims of other
hurricanes are covered under the standard IRS disaster benefit
rules. Next, you have to make sure your disaster meets the
IRS definition of a disaster. IRS Publication 547 can give
you more information on what qualifies as a disaster and what
does not. Lastly, remember what “deduction” means. The deduction
comes off your taxable income amount, not your tax bill. A
$5,000 deduction does not mean you pay $5,000 less, it means
you are taxed for $5,000 less in income. How deductions translate
to a reduction in your tax bill depends on your tax bracket.
# # # # #
SolveYourProblem.com : 2007
> Home > Tax
Articles: Main Page
|
